Pandemic taxes lead to lawsuit against city
The filing comes a day after Columbus settled one of several similar cases filed by the conservative think tank.
The Buckeye Institute on Thursday sued Cleveland for continuing to collect income taxes from a doctor who has worked from home in Pennsylvania for more than a year.
The suit asks the Cuyahoga County Common Pleas Court to declare unconstitutional a state law that allowed Cleveland to continue to collect income taxes from former commuters during the coronavirus pandemic.
The filing comes a day after Columbus settled one of several similar cases filed by the conservative think tank. On Wednesday, attorneys for Columbus Auditor Megan Kilgore agreed to honor Westerville resident J. Eric Denison’s request for a refund on taxes withheld for
Columbus while he worked outside the city.
The Cleveland case was filed on behalf of Manal Morsy, who commuted to her job in Cleveland prior to the pandemic, staying the week and returning to her home near Philadelphia on weekends. That ended when the pandemic took hold and Gov. Mike DeWine ordered people to stay home.
“Dr. Morsy has not set foot in Ohio since March 2020, but she is forced to pay income tax to the city of Cleveland — a city more than 400 miles from her home — as well as to her hometown of Blue Bell, Pennsylvania,” Jay Carson, senior litigator at The Buckeye Institute’s Legal Center and an attorney for Dr. Morsy, said in a news release.
“This continuing violation of the United States and Ohio constitutions offends the basic principles of fairness and equity and The Buckeye Institute urges the courts to bring an end to this modern-day form of taxation without representation,” Carson said.
The city of Cleveland did not have an immediate response to the lawsuit. Mayor Frank Jackson has said in the past that the city believes the law is on its side.
That law was changed in March 2020 as part of emergency coronavirus legislation pushed through the Ohio General Assembly. In that legislation, in response to lobbying by the Ohio Chamber of Commerce, lawmakers included a one-paragraph provision that allowed employers to keep withholding local income taxes as if their employees were still commuting to their offices each day.
Employers sought the provision so they wouldn’t have to refigure withholdings for each employee on short notice.
The provision is to expire 90 days after the state lifts its coronavirus emergency declaration.
For large cities such as Cleveland, that provision was important because commuters from the suburbs generate an overwhelming majority of income taxes collected from jobs performed in Cleveland.
Cleveland collects 2.5% of gross income and 85% of the money comes from people who don’t live in the city. So, if some or all of those workers don’t eventually return to their Cleveland workplaces, the city would be in trouble.
The mayor’s 2021 budget expects individual income taxes and business profit taxes will raise about $424 million of the city’s projected $636 million in revenue for the year.
A loss of just 10% of commuter income taxes would cost Cleveland tens of millions of dollars.
The new suit is similar to other actions the Buckeye Institute has filed since last July. Those cases, filed in Franklin, Hamilton and Lucas counties, contested income tax collections collected by Columbus, Cincinnati, Toledo and Oregon.
The Buckeye Institute celebrated the Columbus settlement as a victory.
That settlement, though, means the court did not decide whether the law change allowing withholding to continue is unconstitutional.
“The Buckeye Institute is glad that the city of Columbus acknowledged that its ability to tax nonresidents indeed has limits,” Carson said. “We are hopeful that courts in Buckeye’s remaining cases, including the one filed today, will recognize … that a city can only tax nonresidents for work that is actually performed in the city.”